Performance review 1H19 results are in line with our expectations. The company announced the results for the first half of 2019: revenue of 11.77 billion yuan, down 9.5% year on year; net profit to mother of 633 million yuan, corresponding to profit of 2.16 yuan per share, up 3.4% year on year. In line with our expectations, net profit after deduction increased 0.66% year on year. On a quarterly basis, 2019 Q1/Q2 company revenue was -9.0%/-10.0% year over year; net profit was +10.2%/-5.8% year over year, and Q2 operations faced some pressure. Development trend 1. The revenue side is under some pressure. The company's revenue in the first half of the year was -9.5%. By region and business format, the Q2 department store/supermarket business revenue in the Dalian region, which accounted for a relatively large share of revenue, was -11.3%/-18.9% year over year, and the Q2 department store/supermarket business revenue in Daqing was -22.2%/-5.5% year over year. On the one hand, it also reflected that physical retail sales in Northeast China was facing growth pressure, and on the other hand, it was also related to the company actively promoting sales restructuring in an effort to eliminate negative and low margin marketing strategies. In terms of exhibition stores, 3 stores were closed in the first half of the year, and no new stores were opened. 2. Profitability has improved. During the reporting period, the company focused on improving the quality and efficiency of operations, benefiting from promotion policy adjustments and product structure optimization. The gross margin increased by 0.9ppt to 26.9% year on year in the first half of the year; the cost control was further strengthened, and the sales expense ratio decreased by 0.5ppt to 6.3% year on year; management expenses increased by 0.1 ppt to 11.1% year on year, partly affected by the decline in sales; the final net profit margin increased by 0.7 ppt to 5.4% year on year, and profitability improved. 3. The value of the company's own property assets is outstanding, and follow-up attention is paid to measures to improve the quality and efficiency of operations. Currently, physical retail is facing effects such as slowing consumption and increased competition in the industry. The company is actively promoting business model changes, upgrading old stores in an orderly manner, and closing loss-making stores; at the same time, promoting centralized purchasing, increasing sales of high-margin products, and implementing cost reduction and fee control, thereby improving the company's operating efficiency and profitability. As a leading physical retail leader in Northeast China, Henan, Shandong and other regions, the company has the ability to operate in multiple business formats. More than 140 outlets spread across the regional core business district, and the property asset value is rich. Follow-up attention is paid to the release of profit margins brought about by improved management efficiency. In the future, the possibility of the company using the capital market to promote industry integration is not ruled out. The profit forecast and valuation keep the current profit forecast unchanged. The current stock price corresponds to 2019/2020e 9.4/9.1x P/E, maintaining an outperforming industry rating. Based on increased competition in the industry and downward pressure on physical retail, the target price was lowered by 6% to RMB 36.5, corresponding to 2019/2020e 12.4/12.0x P/E, with 32% upside compared to the current stock price. Risk consumption is weak; industry competition is intensifying.